The Economic Coordination Committee (ECC) of the Cabinet has announced a crucial decision to establish pension funds in Pakistan starting from July 1, 2024. This move, aimed at addressing the rapidly increasing pension expenses, was disclosed by the Finance Ministry in a statement following the ECC meeting presided over by Finance Minister Muhammad Aurangzeb. The ECC has also given in-principle approval to the Finance Division for the establishment of a Pension Fund.
The ECC approved a proposal for a defined contributory scheme for new entrants, effective from July 1, 2024, and for armed forces personnel starting July 1, 2025. The new pension scheme includes several proposed amendments, which are set to take effect from July 1, 2024. These amendments aim to create a more sustainable pension system by linking gross pensions to 70 percent of the average pensionable emoluments drawn during the last 24 months of service before retirement.
The Finance Ministry has proposed that a pension fund be established using the savings likely to accrue from these proposed reforms. The defined contributory scheme will be introduced for new federal government entrants from July 1, 2024. This fund will help in managing the pension expenses that have been increasing at an unsustainable rate. The current pension system allows entitled employees and their families to receive pensions, but the growing expenditure has necessitated these reforms.
According to the proposed amendments, the calculation of gross pension for federal government employees will be based on 70 percent of the average pensionable emoluments drawn during the last 24 months of service before retirement. Employees may opt for retirement after completing 25 years of service; however, they will face a flat reduction rate of three percent per year in gross pension for each year they retire early, capped at a maximum reduction of 20 percent.
For the armed forces and civil armed forces, voluntary retirement penalties will apply only if retirement is sought or granted before the prescribed rank service. The net pension calculated at the time of retirement will be considered the baseline pension, with any increases in pension granted on this baseline amount. Each increase will be maintained as a separate amount until the federal government reviews and authorizes any additional pensionary benefits.
The new rules also specify provisions for family pensions. Ordinary family pensions, after the death or ineligibility of the spouse, will be admissible to remaining entitled family members for a maximum period of 10 years. In the case of disabled or special children of a pensioner, the ordinary family pension will remain admissible for their lifetime. For other entitled children, the pension will be provided for 10 years or until they reach 21 years of age, whichever is later.
Special family pensions, following the death or ineligibility of the spouse or first recipient, will be admissible to remaining entitled family members for 25 years. For disabled or special children, the special family pension will continue for their lifetime. The rate of this pension for eligible recipients is enhanced to 50 percent of the last drawn pension admissible to the first recipient, without any minimum or maximum limits, and it will be transferable to all eligible heirs as prescribed in the Pension Regulations Vol-I (Armed Forces), 2010.
